Luminous recently attended a briefing entitled ‘ESEF and the Future of Financial Reporting’, hosted by Arkk Solutions. The event was a forum for design agencies to discuss the past, present and future of financial reporting, and learn more about the upcoming changes to financial reporting requirements.
From 1 January 2020, the European Single Electronic Format (ESEF) reporting requirements will apply. ESEF is the electronic reporting format in which issuers on EU regulated markets will have to prepare their annual financial reports. At a high level, this will involve the ‘tagging’ of financial statements to make them machine readable. The aim of ESEF is to make reporting easier for issuers and to facilitate accessibility, analysis and comparability of annual financial reports.
Some of the key takeaways from the briefing were:
- 97% of CFOs lose sleep over the reporting process: it takes up a huge amount of time and resources for many companies and is a major cause of stress for management.
- Data collection, cleaning, verification, analysis and commentary are all crucial, and companies vary in the time they dedicate to each stage. The most efficient companies have standardised their processes and can dedicate a larger portion of time to producing analysis and insight, enabling them to forecast faster and more accurately.
- Given the UK’s current political uncertainty, there is speculation around what will be required of UK companies. However, if the UK does exit the European Union, it is likely that similar legislation will be enacted by the FCA to cover UK companies.
- The tagging process will be multi-stage and will likely involve pre-tagging of previous years’ accounts to reduce turnover time of the final document. It may be that two separate documents are produced: a designed PDF and a tagged document.
- While the ESEF requirements will not apply until next year, many companies are undertaking a dry run of the process this year to ensure that they fully understand the process and can be compliant in the future.
But how will ESEF benefit companies? Well, companies may be able to use data as a more powerful forecasting input and have it feed into, and shape, narrative. The standardisation of financial statements in a global language may open up investment markets to a level not seen to date. So, it pays to stay informed about ESEF.
The Luminous view
Reporting does not stand still. At Luminous, we welcome the changes on the horizon to standardise financial reporting by digital means and look forward to helping companies navigate this changing landscape and guide their annual report towards strategic and regulatory best practice.
If you would like to know more about how your organisation can best apply the new reporting requirements, please get in touch.